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A lot of the time, opening a checking or savings account won’t affect your credit score because it won’t be reported to the three main credit bureaus. The same holds true for normal bank transactions and account balances.
That said, there may be some cases when a bank will perform what is known as a “hard pull” when you open an account, requesting access to your credit file. This can temporarily lower your credit score. Here, take a closer look at how your banking activity can impact your credit and the best way to keep your score as high as possible.
Opening a new bank account can be an important step in managing your finances. But will it impact your credit score? The short answer is in most cases no. Here’s a detailed look at how opening various types of bank accounts may or may not affect your credit.
How Credit Scores Work
Your credit score is calculated based on the information in your credit report. This includes
- Your payment history on loans and credit cards
- Amounts owed on accounts
- Length of credit history
- Types of credit used
- New credit accounts opened
Checking and savings accounts are not included in credit reports. However, actions related to these accounts may end up impacting your score indirectly.
Hard Inquiries
When you apply for new credit, the lender will perform a hard inquiry to check your credit report. Too many hard inquiries in a short period can slightly reduce your credit score.
As time goes on, FICO says that a single hard inquiry can lower your score by no more than 5 points.
Most banks, though, don’t do a hard inquiry just to open a savings or checking account. So most of the time, opening a new bank account won’t lead to hard inquiries.
Overdraft Protection
Some checking accounts offer overdraft protection, which is a linked line of credit that can cover purchases if your account balance becomes negative
When applying for overdraft protection, the bank may do a hard inquiry to check your creditworthiness for extending this line of credit. This could lead to a small temporary drop in your scores.
Reporting Overdrafts
If you frequently overdraw your checking account and fail to bring the balance back positive, the bank may report these overdrafts to the credit bureaus. This would show up as a negative mark and could significantly reduce your credit score.
If you ever overdraw your checking account, make sure to deposit money right away to avoid this. Keep a buffer or sign up for overdraft protection to avoid overdrawing in the first place.
Credit-Building Checking Accounts
There are some banks that offer checking accounts that report your activity to credit bureaus. This can help you build your credit. Examples include Experian Boost and UltraFICO accounts.
With these accounts, responsible use such as making consistent deposits and avoiding overdrafts can positively impact your credit scores over time.
Closed Accounts
For credit cards and loans, closing an account can negatively affect your credit utilization ratio and length of credit history. However, there is no penalty for closing checking or savings accounts as far as your credit is concerned.
The one exception would be if closing while overdrawn leads to the balance being sent to collections. Always be sure to bring accounts to a $0 balance before closing.
Checking Your ChexSystems Record
While opening banking accounts does not affect your credit reports, banks do report activity on checking and savings accounts to ChexSystems.
ChexSystems records instances of suspected fraud, chronic overdrafts, and accounts closed with negative balances. Having negative marks on your ChexSystems record could lead to difficulty opening new bank accounts.
You can request your free ChexSystems report annually to check for any negative history. Dispute any errors with ChexSystems to keep your banking record accurate. Monitor your ChexSystems report along with your credit reports.
In Summary
In most cases, simply opening a new checking, savings, or money market account will not impact your credit scores. However, actions related to the accounts can indirectly affect your credit over time:
- Hard credit inquiries when applying for overdraft protection
- Reporting chronic overdrafts or unpaid negative balances
- Credit-building accounts that report responsible use
- Closed overdrawn accounts sent to collections
Carefully managing banking accounts to avoid overdrafts and always maintaining positive balances will help ensure these accounts don’t end up lowering your credit down the road.
Is there a downside to opening a checking account?
When opening a checking account, it is important to be aware of any fees you may be required to pay or account minimums you’ll need to maintain.
How to Protect Your Credit Score
Even though opening a bank account probably won’t hurt your credit score, some things that happen with banks might, like not paying back your bank when you use overdraft,
Banks and other lenders use your credit score to figure out how risky it is to lend you money. The lower your score, the more risk you represent to them, and they’ll offset this risk by offering you higher interest rates. If you have bad credit, lenders may not extend credit at all. If you’re applying for a home, car, or personal loan, this can obviously have major ramifications!.
So, as you’re establishing credit, it’s critical that you protect your credit score. The goal is to have access to cheaper credit when you need it. That means if you are not sure whether a hard inquiry will be performed, ask before approving a credit check. You don’t want those hard pulls to pile up.
Also, you may receive many different kinds of credit card offers. If you think that applying for more credit cards is better, think again. Each one you send in will probably cause a hard pull, which can raise questions about your creditworthiness in the future.
Here are some other moves that can help keep your credit score in good shape.
When you dip into the overdraft zone, you’ve spent more than you have in your checking account. If you have overdraft protection, your bank will step in and cover the shortfall. They will usually charge overdraft protection fees, and you’ll have to repay the money using a credit card or money from a savings account.
Overdrafts themselves do not affect your credit score if you promptly pay back the overdraft fees and what you owe. However, failing to do so will have an adverse effect on your credit. If, for instance, you are unable to pay off your credit card or the overdraft is sent to collections, your score is likely to tumble.
Avoid overdrafts whenever possible by keeping a close eye on how much money you have in your checking account and never spending beyond that amount. If you’re someone who frequently overdrafts, you may consider dropping overdraft protection. This means your debit card transaction will be declined when you try to make a purchase with money you don’t have. It may be momentarily embarrassing or inconvenient, but it will help protect your credit.
Does Opening Savings Account Affect Credit Score? – CountyOffice.org
FAQ
Does opening bank accounts affect your credit score?
For the most part, opening a checking, savings, or cash management account will not hurt your credit score. Banks, credit unions, and other providers typically do what is known as a soft pull, not a hard pull, when considering your application. This process should not lower your credit rating nor linger on your report.
How much will my credit score drop if I open a new bank account?
If you’re concerned about your credit, opening and closing bank accounts likely won’t have any effect (positive or negative), since your banking activity isn’t reported to the consumer credit bureaus.
Does my credit score go down if I open a savings account?
Opening a savings account does not impact your credit score because you aren’t borrowing money and the activity in your savings account isn’t reported to a credit agency. Most financial institutions will run a soft credit inquiry when you open a savings account but it is only to check your identity.
How to get a 700 credit score in 30 days?
Achieving a 700 credit score in 30 days is a very ambitious goal, and may not be realistic for everyone. However, focusing on key areas can lead to significant improvements. The primary focus should be on making all payments on time, reducing credit utilization, and disputing any errors on your credit report.